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Monday, October 22, 2018

National economist: Expect next recession to be mild

By Thor Kamban Biberman

Economist Sam Chandan likens the economy as being on a “grand plateau” and said when there is the inevitable downturn, he believes it will be a soft landing.

Chandan issued his analysis during a session at the Trigild Lenders Conference at San Diego’s Hard Rock Hotel last week.

Chandan is a member of the real estate faculty at The Wharton School of the University of Pennsylvania, a partner with the global investment advisory firm Capri Capital, and founder of Chandan Economics.

While Spanish philosopher George Santayana said “those who don’t remember history are condemned to repeat it,” Chandan said the next downturn — which he said may come within the next 18 to 24 months — won’t be a calamity the next time around.

Chandan said he doesn’t foresee a single precipitating event that would lead toward a recession. “There aren’t any obvious candidates,” he said, adding that “the next downturn will be relatively mild. It won’t be anything like 2007.”

The economist said the Federal Reserve will probably get blamed for pushing the economy just beyond that tipping point — even if that blame isn’t justified. President Trump is already blasting the Federal Reserve for raising rates too quickly.

Chandan said it has had to raise interest rates to keep the economy from overheating. For now, he said the rates, even with the hikes, “remain exceptionally low.”

There may be dangers, but defaults won’t be prevalent as long as there are rising prices, according to Chandan.

The economist added that if the economic growth manages to continue until next June, the duration will have been longer than any expansion in recent memory.

“The grand plateau is the opposite of the great recession,” he said.

The economy may look very strong, even with a downturn coming in 2020. Chandan said there are always things, like unseen political events, that could change the calculus. He did express concern that trade wars are the wild card that could damage the world economy.

“Markets get spooked,” he said, before emphasizing again that “inflation has been relatively benign.”

As for real estate, Chandan said while there is no question that millennials are staying in apartments longer, single-family home developers may take heart “that (millennials) will move to the suburbs and buy the minivans as well.

“People tend to think of millennials as homogeneous, but they have extraordinary diversity,” Chandan added. “For now, millennials are not willing to take on mortgages. They are willing to take on student loans.”

While commercial real estate took a major hit during the last recession, like residential real estate did, Chandan said “commercial real estate won’t be a proximate cause of the next recession.”

He also said the downturn should be milder since we’re not in an era of “run-away appreciation” that helped contribute to the previous crash.

“The economy has been growing more slowly,” he said, adding that it’s strong enough that “there’s a job opening for every person who’s not working” even if the skills don’t always match up.

Some sectors will fare better than others, according to Chanan. “We’re heavily overstored,” he said. “There aren’t enough restaurants to fill all the empty apparel stores.”

People might want to walk through a store if they want to make sure they get a good tomato, or a piece of fruit, for example, but Chandan said that is a choice that prevents people from getting the benefits of groceries online.

“The only thing constraining us is behavior,” he said.

Sometimes transportation is a problem that prevents the free moving of goods and people. Chandan, who complained about the difficulty getting between JFK Airport and Manhattan, said similar difficulties can happen with industrial space.

“You can build the best logistics center in the world, but it’s no good if you can’t get the goods to anywhere,” he said.

thor_biberman@sdtranscript.com